Wednesday, March 26, 2014

In Search of a Second Act: The Challenges and Advantages of Senior Entrepreneurship

Testimony Before the U.S. Senate Special Committee on Aging & the Senate Committee on Small Business and Entrepreneurship

Contrary to popular perception, entrepreneurship is not exclusive to the young and hip.

With that message, Kauffman Foundation Vice President of Research and Policy, Dane Stangler, provided testimony to the U.S. Senate Special Committee on Aging & the Senate Committee on Small Business and Entrepreneurship on how policymakers can foster senior entrepreneurship and why it is important to the U.S. economy.

Before theU.S. Senate Special Committee on Aging & the Senate Committee on SmallBusiness and Entrepreneurship

In Search of a Second Act: The Challenges and Advantages of SeniorEntrepreneurshipFebruary 12, 2014

Chairman Nelson, Chair Landrieu, Ranking Member Collins, Ranking Member Risch, and members of the Aging and Small Business and Entrepreneurship Committees, thank you for the opportunity to present data gathered by the Ewing Marion Kauffman Foundation on senior entrepreneurship.

Founded by late entrepreneur and philanthropist Ewing Marion Kauffman, the Kauffman Foundation is a private, nonpartisan foundation based in Kansas City, Missouri that aims to foster economic independence by advancing educational achievement and entrepreneurial success.

At the Kauffman Foundation, we believe in the power of entrepreneurship to not only change individual lives, but to also create economic opportunities for many others in society.

With the goal of creating new knowledge about entrepreneurship, the Kauffman Foundation conducts and supports research that informs policymakers and the public about pro-entrepreneurship policies at all levels of government.

Our research contributes to a more in-depth understanding of what drives innovation and economic growth in an entrepreneurial world.

Contrary to popular perception, entrepreneurship is not exclusive to the young and hip. Entrepreneurs of all ages start businesses and create economic opportunity for themselves and others.

Last year, for example, businesses started by those ages 55 to 64 accounted for nearly one-quarter of all new businesses started.

That share has risen from 14 percent in 1996, according to the Kauffman Index of Entrepreneurial Activity, which captures business owners in their first month of significant business activity.

In the context of America's aging population, an increasing share of entrepreneurship among this population is perhaps not surprising.

What might be more startling to many observers is that Americans in the 55-64 age group start new businesses at a higher rate than those in their twenties and thirties.

This has been true, by the way, in every single year from 1996 to 2013.

While senior entrepreneurs make up a sizeable portion of all entrepreneurs and tend to start businesses at a rate comparable to or higher than younger entrepreneurs, there are possibly some reasons to temper our enthusiasm about this phenomenon.

First, we are unsure of the types of businesses being founded by older entrepreneurs or their hiring practices — more cynical observers say that this group only starts consulting companies or use self-employment for supplemental income.

This is undoubtedly true for some share of older entrepreneurs.

Yet other evidence indicates that we find founders of technology companies in their fifties and sixties as well: one study found more tech founders over age 50 than under age 30.4

Of more concern perhaps is the lingering effect of the Great Recession and the decimation of retirement plans and housing wealth.

To the extent this damage fell on Americans over age 55, self-employment may be seen as a way to recover nest egg losses.

Finally, with concern about Americans over age 55 permanently leaving the labor force after the recession, it is possible that older entrepreneurship rates could be suppressed.

Nevertheless, there are more reasons for optimism than pessimism about entrepreneurship among older Americans.

First, senior entrepreneurs are likely to have greater experience than younger entrepreneurs.

That experience, whether professionally or personally, can prove valuable when starting a new business.

Secondly, perhaps paradoxically, senior entrepreneurs may have fewer concerns about setting up a business.

In their paper on entrepreneurs over the age of 50 in the United Kingdom, Ron Botham and Andrew Graves found that older entrepreneurs were "less likely to worry about risks, experience, or family life than younger founders."

Third, despite the effects of the recession, senior entrepreneurs may be more financially secure than younger entrepreneurs and may have an alternative source of income — either from retirement savings, a pension, or Social Security.

This added financial security can make the financial risks of starting a business less salient.

Finally, we might expect a higher preponderance of serial entrepreneurs among those in their fifties and sixties, which could mean greater success rates.

A 2012 Kauffman Foundation and LegalZoom survey of 1,400 business owners who incorporated their business through LegalZoom in 2012 found two-thirds of respondents over age 60 had previously started a company and ten percent of these entrepreneurs had started 5 prior companies.

Research suggests that there are several ways policymakers could support this very important phenomenon of older entrepreneurship.

Lower barriers to entry in general, for example, would make business creation easier. Licensing barriers in several sectors — which exist mostly at the state and local level — also suppress business creation.

The complexity — though not necessarily the level — of taxes can also act as a barrier to entrepreneurship.

This may be especially important for senior entrepreneurship as research has shown that senior entrepreneurs are much more likely to start a business if moving from a job.

In addition, fostering more senior entrepreneurship as the American population ages will require careful attention to specific sectors in order to foster innovation.

n particular, we will likely need more financial innovation to support continuously changing forms of entrepreneurship.

Finally, policymakers can foster senior entrepreneurship by encouraging intergenerational networks where entrepreneurs of different ages can interact and learn.

The Kauffman Foundation started a new entrepreneurial support program called 1 Million Cups in Kansas City that has spread to more than two dozen cities across the United States.

Each week, the 1 Million Cups program offers local entrepreneurs an opportunity to present their startups to a diverse audience of mentors, advisors, and entrepreneurs.

Presenters prepare a short educational presentation and engage in 20 minutes of feedback and questioning after they present.

Entrepreneurs gain insight into possible ways they can improve their businesses, gather realtime feedback, connect with a community that truly cares about their progress, and walk away feeling like they have advanced their business.

These community gatherings provide opportunities for individuals of all ages to connect around entrepreneurship.